Benefits of Conventional over Synthetic

[Tom NJ]

Having worked in synthetic oil marketing for 30 years, I almost never set prices based on cost, unless I had no market intelligence such as some closed bids. Good marketing determines the market price based on competitor activities and the perceived value held by the targeted customer. After determining the appropriate market selling price, I would look at the product cost to see if I wanted to pursue the business.

Some products I priced below cost when there were strategic reasons to justify the investment. Others were sometimes priced at obscene margins where there was no competition or a lack of alternative product choices. Most were priced based on market intelligence and varied by product, application, and customer. Often there were different prices for the same product when sold into different markets or against different specifications.

For every product there is a proper market price that meets the strategic plan, usually maximizing the return (volume times margin) or strategic market positions. The marketing professional's job is to create or find that price, and to subsequently defend it or push it up by influencing the perceived value.

Cost matters to the extent that it affects margin and the value placed on pursuing and maintaining the business. It is the job of Purchasing, Manufacturing, and R&D to constantly drive the cost down while preserving marketing targets (such as quality). It is the job of Marketing to constantly drive the price up by outsmarting competition and adding value through product features and service.

Price, cost, and margin are fluid. A company that fixes price against cost misses opportunities in ever changing markets and will eventually be predicted and outsmarted by more savvy competitors.

Tom NJ

 

[dlundblad]

Thank you tom for the explanation.

 

[edhackett]

Here's a chart of base oil costs. The difference between a group II+ "conventional" and a group III "synthetic" is about 10 cents a quart. That translates to about $2.90 a quart perceived value on the shelf.

http://jacksonoilsolvents.com/2014/01/base-oil-price-report/

Ed

 

[kschachn]

Well I never said the prices were fixed against cost - I was merely responding to your assertion that "There is no relationship between cost and price in marketing." I still disagree with that statement based on anything and everything I have ever experienced working for companies both small and very large. But thanks for taking the time to elaborate.

And the only time I have ever experienced selling a product or service for less than what it cost to produce was when I worked in the airline industry. During the period of about 2001 to 2006 nearly all the airlines were selling seats for less than their CASM. It was not a good situation but it was because of excess supply. If you saw it elsewhere then OK, but you can't do that very long. Companies are not in business to give away money.

Originally Posted By: Tom NJ
Having worked in synthetic oil marketing for 30 years, I almost never set prices based on cost, unless I had no market intelligence such as some closed bids. Good marketing determines the market price based on competitor activities and the perceived value held by the targeted customer. After determining the appropriate market selling price, I would look at the product cost to see if I wanted to pursue the business.

Some products I priced below cost when there were strategic reasons to justify the investment. Others were sometimes priced at obscene margins where there was no competition or a lack of alternative product choices. Most were priced based on market intelligence and varied by product, application, and customer. Often there were different prices for the same product when sold into different markets or against different specifications.

For every product there is a proper market price that meets the strategic plan, usually maximizing the return (volume times margin) or strategic market positions. The marketing professional's job is to create or find that price, and to subsequently defend it or push it up by influencing the perceived value.

Cost matters to the extent that it affects margin and the value placed on pursuing and maintaining the business. It is the job of Purchasing, Manufacturing, and R&D to constantly drive the cost down while preserving marketing targets (such as quality). It is the job of Marketing to constantly drive the price up by outsmarting competition and adding value through product features and service.

Price, cost, and margin are fluid. A company that fixes price against cost misses opportunities in ever changing markets and will eventually be predicted and outsmarted by more savvy competitors.

Tom NJ

 

[kschachn]

The products I have been involved with were never sold this way. It was illegal to sell the same product as two different ones. You could take a product and sell it to a different brand, but you could not sell the same product as two different ones for two different prices.

You could play games with things and make them "different" but functionally identical and that was OK. I guess my experience is why I have always thought that M1, M1 EP, M1 AFE and M1 HM were always different. How different I did not know, but I figured that they had to be different.

Originally Posted By: Tom NJ
Often there were different prices for the same product when sold into different markets or against different specifications.

 

[Garak]

Originally Posted By: kschachn
The products I have been involved with were never sold this way. It was illegal to sell the same product as two different ones. You could take a product and sell it to a different brand, but you could not sell the same product as two different ones for two different prices.

Could you elaborate on your view of this? There certainly are products out there that are almost perfect clones of each other. Look at Hastings and Baldwin. Or, Napa Gold and Wix. Now they don't tend to be sold at the same locations, so that's why I'm interested in what you have to say on the matter.

 

[kschachn]

Well, it might be industry specific I do not know. I used to work for a very large multinational company. One of the things we made (a high liability product that they may have spun off, I am not sure) was gas valves. Everything from the ones on residential water heaters and those used in RVs to huge industrial things for big boilers. A long story is being left out, but we could not and were prevented from selling the same identical gas valve under two names for different prices. Essentially we could not pull two valves off the assembly line and put them in two boxes that implied they were different, and sell one for $1500 and one for $1300. That was illegal.

Now you could play games with what made one "different" than the other, and you could take a valve and private label/relabel it as a different brand (with some kind of change, I'm not sure what). But if your name was "ABC Gas Valves", we were prevented from selling an identical valve under the ABC Gas Valve company label for two different prices.

To me it would be like ExxonMobil putting two differently labeled jugs under the same spout and selling it as two varieties of M1.

Originally Posted By: Garak
Originally Posted By: kschachn
The products I have been involved with were never sold this way. It was illegal to sell the same product as two different ones. You could take a product and sell it to a different brand, but you could not sell the same product as two different ones for two different prices.

Could you elaborate on your view of this? There certainly are products out there that are almost perfect clones of each other. Look at Hastings and Baldwin. Or, Napa Gold and Wix. Now they don't tend to be sold at the same locations, so that's why I'm interested in what you have to say on the matter.

 

[Tom NJ]

Originally Posted By: kschachn
The products I have been involved with were never sold this way. It was illegal to sell the same product as two different ones. You could take a product and sell it to a different brand, but you could not sell the same product as two different ones for two different prices.


It's perfectly legal to sell the same identical product at different prices under a different name into different classes of trade or against different specifications. It is also legal to discount a product for one customer to meet a bona fide competitive price, and not lower the price accordingly for all other customers of the same product.

It is not legal to fix prices, or to conspire with companies against a competitor.

Tom NJ

 

[kschachn]

Well maybe there is a devil in the details but I can tell you we got sued, and lost over it (and the two items weren't exactly the same, just not different enough).

So can ExxonMobil put the exact same oil in both the M1 and M1 HM bottles?

Originally Posted By: Tom NJ
Originally Posted By: kschachn
The products I have been involved with were never sold this way. It was illegal to sell the same product as two different ones. You could take a product and sell it to a different brand, but you could not sell the same product as two different ones for two different prices.

It's perfectly legal to sell the same identical product at different prices under a different name into different classes of trade or against different specifications. It is also legal to discount a product for one customer to meet a bona fide competitive price, and not lower the price accordingly for all other customers of the same product.

It is not legal to fix prices, or to conspire with companies against a competitor.

Tom NJ

 

[Brian Barnhart]

Tom’s posts touch on what has bugged me for years. In the US, the current IPC/SAE/ ILSAC make no distinction between gasoline engine oils and, except for viscosity, are a one size fits all solution. This may be convenient for the person who just wants a suitable oil for their car, but leaves those looking for something better without any data for comparison. The oil companies have to love it. They can make ordinary oil that meets IPC/SAE/ILSAC requirements and use clever marketing to dupe potential customers into thinking it may be better than the ordinary product it really is.

Some “synthetic” oils are marketed as meeting requirements beyond IPC/SAE/ILSAC requirements (ACEA and specific manufacturer specs). So in the case of some “synthetics” a data based comparison can be made. But that’s about it. Three cheers for US oil marketing.

PQIA has taken on the false practices of some oil marketers. Might they dare take on the task of comparing the product performance of the Majors producing “synthetics”? Perhaps it would be cost prohibitive.

In the case of the false practices, the producers of legitimate product can see an economic benefit from having their deceptive competitors taken to task. But I’m not sure there is a business model to support the costly performance comparison of major oils.

 

[telecat]

Originally Posted By: wemay

Unfortunately some people like telling others how to spend their money and on what.

It's the same with other things. I'm a musician and on guitar fora, electric guitar pickups are a topic of fierce and hostile debate. Some are OEM believers, and often one maker's pickups will be the "flavor of the month" the way oil filters, oil and other things are.

Just as I don't care what pickups anyone uses, I don't care what anyone uses in their vehicles. After too much time wasted in the debate, I just gave up, though to read some of the responses to what I've written, you'd think I said bad things about some folks' mamas or something (no, I did not).

 

[Tom NJ]

Originally Posted By: kschachn


So can ExxonMobil put the exact same oil in both the M1 and M1 HM bottles?


I'm not a lawyer, but so long as what is in the bottle complies with the description, specs, and claims on the labels and data sheets, no one is being deceived.

If they put regular M1 into HM bottles, one could argue that it does not meet the claims since HM oils are perceived to have additional anti-wear, detergents, and seal conditioners. On the other hand, HM is an undefined term with no standards or specifications, so there are no grounds for a suit.

If a company is clever enough to formulate an oil that meets multiple standards, they can sell the same oil under different labels for different market segments, but they should change the name.

Tom NJ

 

[kschachn]

Well, I will take your word for it. Thanks for your reply.

Originally Posted By: Tom NJ
Originally Posted By: kschachn


So can ExxonMobil put the exact same oil in both the M1 and M1 HM bottles?


I'm not a lawyer, but so long as what is in the bottle complies with the description, specs, and claims on the labels and data sheets, no one is being deceived.

If they put regular M1 into HM bottles, one could argue that it does not meet the claims since HM oils are perceived to have additional anti-wear, detergents, and seal conditioners. On the other hand, HM is an undefined term with no standards or specifications, so there are no grounds for a suit.

If a company is clever enough to formulate an oil that meets multiple standards, they can sell the same oil under different labels for different market segments, but they should change the name.

Tom NJ

 

[Tom NJ]

Originally Posted By: Brian Barnhart


PQIA has taken on the false practices of some oil marketers. Might they dare take on the task of comparing the product performance of the Majors producing “synthetics”? Perhaps it would be cost prohibitive.


The only way to compare oil performance is to run multiple controlled engine and/or fleet tests. The cost could easily run over a million dollars.

Remember, PQIA's mission is not to compare oils of different brands, even though that is how BITOGers use the data. Their mission is to compare what is in the bottle to what is on the label. The tests are limited to those that would catch the majority of routes that cheaters may take to save cost, such as using lower quality base oils or shorting the additive package.

Some oil companies formulate to the bottom of the specification to maximize profit. Others build additional performance features into their formulations to differentiate their product from the competition. Marketing is the means by which they tell the consumer why their oil is better, but since they have a proclivity toward embellishment it must be taken with a large grain of salt.

Also keep in mind that engine builders set the oil specification bar very high to protect their engines and minimize warranty claims. Therefore even oils formulated to the bottom of the spec are pretty darn good oils and offer excellent protection. Specialty oils are usually aimed at high performance engines, stressful environments (racing, cold climates, etc), or extended drains, and do not offer added value to the vast majority of drivers.

Tom NJ

 

[zerosoma]

Synthetic is best, conventional is adequate.
Synthetics' initial cost is pricier, conventional is initially less expensive.
Synthetic will get the job done better, conventional will get the job done.

With that being said my system is conventional during the spring/summer/fall, synthetic in the winter. It's a win-win for me as I save money when I need adequacy and I get performance when I need it in the winter.

 

[zerosoma]

Originally Posted By: tacoguy714
Cold start-up isn't as effective and if you go double the oci, why pay for labor twice?


Why pay labor at all?

 

[zerosoma]

Originally Posted By: telecat
Originally Posted By: wemay

Unfortunately some people like telling others how to spend their money and on what.

It's the same with other things. I'm a musician and on guitar fora, electric guitar pickups are a topic of fierce and hostile debate. Some are OEM believers, and often one maker's pickups will be the "flavor of the month" the way oil filters, oil and other things are.

Just as I don't care what pickups anyone uses, I don't care what anyone uses in their vehicles. After too much time wasted in the debate, I just gave up, though to read some of the responses to what I've written, you'd think I said bad things about some folks' mamas or something (no, I did not).



All I know is that I've got some lace sensors sitting around just waiting to be soldered into my mij paisley strat. Going on 3 years now. Just dont have the time. sigh.

I also realized I got the pickups mixed up in my Korean squier strat, so now the neck pickup is at the bridge and vice versa. Bummer city.

 

[Nederlander75]

What is interesting when looking at the value of the 2 options is the additives found in the majority of each. The majority of the synthetic options seem to have a balance of Moly and Boron, even magnesium. Excluding the SOPUS conventional offerings, which haven't always countered their Moly with Boron though seem to be doing so lately, most of the conventional offerings come with a Sodium additive dominated PI. Is this because they are the bonus options and Moly and Boron are more costly relegating them to the higher end, synthetic offerings? Something to consider, though we obviously see superior conventional performers when viewing UOAs if one thinks they have any relevance.

 

[lukejo]

Originally Posted By: Nederlander75
Something to consider, though we obviously see superior conventional performers when viewing UOAs if one thinks they have any relevance.


Do you mean superior conventional vs other conventionals, or vs some synthetics? Not rhetorical, I'm really trying to learn. If vs synthetics, which conventionals are you referring too?

 

[Garak]

Originally Posted By: kschachn
To me it would be like ExxonMobil putting two differently labeled jugs under the same spout and selling it as two varieties of M1.

That might happen, but I guess we have no evidence of it. I'd certainly be inclined to believe that the M1 spout (or Petro-Canada spout or whatever) fills other bottles, such as differently branded service fills for certain OEMs.

From a consumer's perspective, the scenario you described is certainly less obvious and more difficult to prove. Take something like Hastings and Baldwin. Clarcor isn't going to one shop and selling them Hastings at $1 a filter and Baldwin at $2 a filter. Heck, I don't even see them alongside each other in the same shops (what would be the point?). The same applies to Pennzoil and QS filters, which might be much the same.

And, if we were to be really pessimistic and were sure that Pennzoil, QS, and Formula Shell were all the same product, would that be a different matter than what you described?